Major motor tax increases on the way

IRL/GB

Major motor tax increase on the way

Major motor tax changes proposed for the next budget. According to government officials, major changes are to be implemented in the motor tax regime. This is to include an additional number of tax bands for Vehicle Registration Tax (VRT).

There will also be an elimination of hybrid tax relief and electric vehicle grants, as well as a replacement of the one per cent diesel surcharge with a NOx emissions charge.

The department of finance has drafted a paper with these propositions for the budget which they intend to hold out until 2020 to implement. 

The aim of these alterations is a move towards strengthening the environmental rationale of the VRT regime, with the use of new tougher CO2 emissions figures when applying tax on new cars and used imports. 

A new formula is recommended that has fixed and variable elements to remove the stepped nature of the current regime. Some of the changes that have been proposed include:

  • New low rate of 7% for emissions under 51g/km 

  • New tax band added between 51-80 g/km would see a tax rate of 8%

  • Higher tax band applied for every 10g/km thereafter up to 201g/km

Current VRT Category A Rates Table

VRT Band

CO2 Emissions (g/km)

VRT Rate

Minimum VRT

A1

0 - 80 g/km

14% of OMSP

€280

A2

81 -100 g/km

15% of OMSP

€300

A3

101 - 110 g/km

16% of OMSP

€320

B1

111 - 120 g/km

17% of OMSP

€340

B2

121 - 130 g/km

18% of OMSP

€360

B3

131 - 140 g/km

19% of OMSP

€380

C

141 - 155 g/km

23% of OMSP

€460

D

156 - 170 g/km

27% of OMSP

€540

E

171 - 190 g/km

30% of OMSP

€600

F

191 - 225 g/km

34% of OMSP

€680

G

225 g/km and above

36% of OMSP

€720

 

Current VRT Category A Diesel Rates Table

VRT Band

CO2 Emissions (g/km)

VRT Rate

Minimum VRT

A1

0 - 80 g/km

15% of OMSP

€300

A2

81 -100 g/km

16% of OMSP

€320

A3

101 - 110 g/km

17% of OMSP

€340

B1

111 - 120 g/km

18% of OMSP

€360

B2

121 - 130 g/km

19% of OMSP

€380

B3

131 - 140 g/km

20% of OMSP

€400

C

141 - 155 g/km

24% of OMSP

€480

D

156 - 170 g/km

28% of OMSP

€560

E

171 - 190 g/km

31% of OMSP

€620

F

191 - 225 g/km

35% of OMSP

€700

G

225 g/km and above

37% of OMSP

€740

The WLTP- Worldwide Harmonised Light Vehicle Test Procedure has been introduced since 2017 and is a laboratory test is used to measure fuel consumption and CO2 consumption from passenger cars, as well as their pollutant emissions. It has replaced the NEDC (New European Driving Cycle) which is an outdated method that has been based on theoretical with real-driving data. 

The report recognises that for dealerships and the lead-in time in purchasing vehicles, it is justified to hold off the implementation of the new tax regime until 2020

When it comes to older vehicles that have been categorised by the old test method, two options have been suggested which would be to increase the old rating by 21% and apply to tax figure or the use of a sliding scale. 

As many are aware, the UK has decided on an anti-diesel sentiment in a bid to reduce the number of diesel vehicles in big cities, although this has a knock-on effect in Ireland as it encourages an increase in the number of diesel imports. 

Recent evidence produced by the new emissions testing system WLTP shows that CO2 emissions for conventional hybrids are substantially higher than what the old system originally anticipated. A statement issued in the paper concluded that:

“It is difficult to provide a continuing justification for the extension of VRT relief for conventional hybrids in view of the emerging evidence”. 

On top of this, it is proposed that there should be a tax relief limit of €5,000 on fully electric vehicles and only on vehicles up to €40,000, with no relief on vehicles above €50,000. 

Another recommendation proposes the elimination of the diesel surcharge for a charge linked to NOx emissions and other air pollutants. This could be €5 per mg/km of NOx. This new levy would also be applied to new cars and used imports. 

So what will these new motor tax changes mean for motorists?

  • Petrol and diesel prices will rise - increasing carbon tax from €20 per tonne to €80 by 2030 will add 17.2 cents per litre of petrol and 19.65 cents per litre of diesel
  • Higher annual motor tax - the current rate of tax would stay the same for the first two tax bands and then the price would rise between €20-150 depending on the vehicle's emissions
  • New benefit in kind tax bands -  reducing the number of bands and increasing the minimum mileage to qualify for the lowest rate.

What does this mean for new car buyers or those importing a used vehicle? 

  • The number of tax bands is set to increase from 11 to 14 and the tax rates will change
  • The lowest rate drops to 7 per cent for cars with emissions below 50g/km and rises to 39 per cent for cars with emissions over 200g/km
  • The diesel surcharge of 1% will be replaced by a new levy set against a vehicles NOx emissions, to be added to the price of the car or the tax of the imported vehicle. 
  • The removal of tax relief benefits is being considered. To axe, the current €1500 tax relief on conventional hybrids and €2500 relief on plug-in hybrids, this makes the case that if these were removed the vehicles would still benefit from lower VRT rates. 
  • The tax relief of €5,000 will only be available on vehicles up to the value of €40,000 tapering off quickly with no relief over €50,000. 

It is unclear exactly when these changes are to be implemented, this proposal must be looked at in-depth by the Minister for Finance before the budget in October 2019. This is happening now due to the government's climate action plan needs areas like transport to put environmental issues at the top of their list. 

IRL/GB